Putting the Pieces of Formulary Decisions Together

June 15, 2017

Article by:

Camm Epstein
Founder
Currant Insights

Though all the king’s horses and all the king’s men couldn’t put Humpty Dumpty together again, it’s pretty easy to put the pieces of formulary decisions together. Efficacy, safety and tolerability, and cost are basic building blocks for formulary decisions. Yet, formulary decisions are not limited to this oft-cited triad. It’s helpful to know how these and other pieces influence the way formulary decisions are put together.

Efficacy

Beyond the FDA-approved indications, formulary decision makers often consider the importance of the effect of the product. This explains why payers have a love-hate relationship with new stuff. For example, payers typically are not willing to pay for convenience. Payers also critically evaluate the evidence that supports the manufacturer’s claims about a product. This includes aspects of the studies that generated the evidence, such as the population studied, outcome measures, and measures of effect. When payers think a statistically significant difference is not clinically or financially significant, an efficacy improvement may fall on deaf ears. Formulary decisions may also consider whether there is real-world evidence, which is what payers really, really want. Formulary decisions may also be impacted by comparative effectiveness research (CER) that demonstrates efficacy relative to alternative products. However, CER may not be possible (e.g., a novel treatment for a rare disease) and results may not be desirable if the trial design is flawed (e.g., wrong comparator or endpoints).

Safety/Tolerability

Formulary decision makers will consider aspects of safety and tolerability related to the use of the product, and may consider any relevant issues related to storage and shipping. Of special consideration would be any required risk evaluation and mitigation strategies. P&T committees may consider the number, size, and length of clinical trials, as well as potential safety signals emerging from postmarketing surveillance. Rare but serious side effects are often not detected until the product is used by more patients over time. While safety is often coupled with tolerability, P&T committees typically make a clear distinction between adverse events and the extent to which patients can tolerate them, as significant issues with tolerability would drive up nonadherence and discontinuation rates. And as with efficacy, some formulary decisions are made with comparative product safety and tolerability in mind.

Cost

Several aspects of cost are factored into formulary decisions. The acquisition cost, the net cost after rebates, impacts formulary decisions. However, it is important to recognize how formulary decisions can, in turn, impact the acquisition cost. There may also be additional costs to the payer associated with the monitoring or administration of the product, as well as switching costs and costs associated with adverse events. Conversely, there may be cost offsets from avoidance of complications or reductions in healthcare utilization. Manufacturer-sponsored budget impact models used to estimate additional costs and cost savings do not have much sway with payers. While copay cards do not have a direct impact on a payer’s costs, they undermine copay tier-cost differential designed to manage utilization and lower costs. As a result, a manufacturer’s use of copay cards may also be a consideration. The frequency and magnitude of cost increases over time may be a consideration, as well as contracts that provide price protection. Of course, the total cost, as best as it can be approximated, will be compared across alternative products.

Further, the relationships between cost and effectiveness (efficacy and/or safety and tolerability) complicate formulary decisions. For example, better efficacy may or may not justify a higher cost. And when payers think non-inferior products are superior, it’s usually because the total cost is lower. Formulary decisions may then be impacted by cost-effectiveness analyses that attempt to measure value. However, there are reasons to question the value of the value equation used in such analyses.

Undesirable use

The perceived potential for misuse, overuse or underuse, or abuse can impact formulary decisions. For example, heightened sensitivity to opioid abuse certainly affects formulary decisions. What is the potential for off-label use, and to what extent is this undesirable? Curiously, in some instances, off-label use is encouraged or, at least, not discouraged — aha, a double negative!

Context

In understanding how the pieces of formulary decisions are made, context matters — a lot. Is the condition the drug treats important in terms of quality or quantity of life? How prevalent is it? Does the product address an unmet need? And if so, how many patients with the condition benefit from the product — most or a small subgroup? How crowded is the market, and are there any dominant brands? What is the presumed likelihood of the new product growing market share? After all, failure to grow market share could negatively impact the value of rebates, a reason why payers help successful products succeed. Are there guidelines, and, if so, are they evidence-based? Would a payer consider it desirable to shift the burden of market access decisions, as is sometimes done in oncology? Are there generic alternatives? And, if so, are they single-source or multisource? Are there biosimilar alternatives? And, if so, will they be interchangeable? The list of potentially relevant environmental factors goes on and on.

All together now

Manufacturers’ efforts to influence formulary decisions often fall to pieces. These failures are both predictable and preventable. Understanding how formulary decisions are pieced together can help to inform clinical trial designs, shape pricing, contracting, and marketing decisions, and avoid off-the-wall initiatives such as value-added programs that don’t add value. Consistently coupling the potential for undesirable use and market context to the oft-cited triad of efficacy, safety and tolerability, and cost yields a more complete consideration set for formulary decisions, and guides manufacturers where payers want to go.

No Comments

Leave a Reply